Bernard Hickey: Chances missed on two issues

Labour leader Phil Goff has detailed plans for a tax-free zone for the first $5000 of everyone's incomes. Photo / Sarah Ivey

This week, an earthquake shook New Zealand's political and economic landscape. Finally there are clear battle lines between the two major political parties.

The election will be fought over foreign debt and income inequality, both major issues facing most developed countries.

Labour leader Phil Goff detailed plans for a tax-free zone for the first $5000 of everyone's incomes, paid for by an unspecified crackdown on tax avoidance and a new and also unspecified high tax rate on taxpayers earning well in excess of $100,000.

Goff has correctly understood the growing mood of revolt about the widening gulf between the uber-rich and the working (or unemployed) masses. Last year's tax cuts for the richest New Zealanders paid for by a consumption tax hike on everyone has given this mood new momentum.

Prime Minister John Key hit back quickly with his own mood-catching device. New Zealanders are feeling austere and nationalistic.

Key argued the moment of truth was near, where we had to decide what to sacrifice to start repaying our foreign debt and to avoid being forced into a humiliating Irish or Greek-style slash-and-burn exercise. Key argued the first pieces of ballast to ditch were stakes of up to 50 per cent in energy companies.

It has surprised many how quickly the fault lines emerged but they have been building for years. Debate in policy-making circles in the Northern Hemisphere is all about dealing with economic inequality, which many believe helped cause the financial crisis and is now worsening dramatically because of it.

Meanwhile, fear is growing about the sustainability of the foreign borrowing which many developed-economy governments have embarked on. How long before global markets punish the borrowers again with higher interest rates?

New Zealand's political leaders bottled these twin fears about foreign debt and economic inequality in their respective platforms. But neither have yet to take the hard decisions to deal with both issues.

If Goff was serious about fixing inequality, he would propose land taxes and higher taxes on family trusts to ensure loopholes aren't created. If Key was serious about reducing foreign debt, he would cut social welfare, health and education spending, and impose new taxes on wealth. Both leaders missed opportunities this week to deal with these two issues of our age.